Opinions
David Fingold
Barclays Bank PLC
BCS-N
DON'T BUY
Apr 10, 2018
$12.290
Stock price when the opinion was issued
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WEAK BUY
Best European bank? European banking is difficult, given negative interest rates. Best in class is Barclay's for its investing banking business or Lloyd's Banking. There should be more consolidation here, but it's difficult in Europe (look at ATD'B trying to buy Carrefour this month).
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TOP PICK
Stockchase Research Editor: Michael O'Reilly BCS is one of the UK's top retail banks and is well diversified across personal, corporate, investment banking, credit and wealth management. It trades at 6x earnings compared to peers at 12x. With a good earnings outlook, its PEG ratio is only 0.18 and it trades below book value. It has a small dividend, backed by a payout ratio of only 10% of cashflow and it is building its cash reserve holdings. We would buy this with a stop loss at $8.25 looking to achieve $12.50 -- upside potential over 25%. Yield 0.61% (Analysts’ price target is $12.54)
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TOP PICK
Stockchase Research Editor: Michael O’Reilly We reiterate BCS as a TOP PICK. The UK top ranked retail bank is well diversified across personal, corporate, investment banking, credit and wealth management. It trades at 7x earnings compared to peers at 14x and it trades below book value. It has a small dividend, backed by a payout ratio of 50% of cashflow and it is building its cash reserve holdings. We would buy this with a stop loss at $9.25 looking to achieve $12.50 -- upside potential over 16%. Yield 2.05% (Analysts’ price target is $12.46)
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PAST TOP PICK
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PAST TOP PICK
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PAST TOP PICK
(A Top Pick Oct 07/21, Down 3.7%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with BCS has triggered its stop at $10.25. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 1%, when combined with the previous buy recommendation.
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DON'T BUY
UK banking sits somewhere between the Swedish/Canadian model and the US model. Fewer players, strong and well-protected balance sheets, growing organically. It's OK, but you are exposed to the UK and its pressures on consumers, housing, and the economy. Valuation is OK. He'd prefer a Canadian pick. Yield is 2.9%.
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He compared it to Deutsche Bank, which he also does not recommend. He thinks they rely on lines of business that will do worse in the future. They were a leading distributor and manufacturer of mortgage-backed securities. “We’re really talking here about Lehman Brothers.” The way the MBS works, conforming MBS doesn’t offer much margin. Subprime and Alt-A were so important because they attract a lot of margin, but those are now out of the mix. He likes the people who work at Barclays, but he would rather put his money in JP Morgan. All the non-American banks are subject to base erosion tax, which raises their costs. JP Morgan and other American banks are not. Brexit also puts the larger American banks into a good position to take share in the European market.